Supervisory board elections in times of the coronavirus pandemic
– challenges for elections of employee representatives
Deutsche Bahn was one of the first German companies to take the initiative: in view of the worsening crisis, employee representatives and the company agreed in early March to postpone the election of the new employee representatives to the supervisory board originally planned for 10 and 11 March for an indefinite period.
1. Practical challenges
The current situation poses a wide range of practical challenges for both employers and employee representatives in the light of the upcoming election of supervisory board members. Although things are getting going again in some parts of the economy due to the easing of the rules to prevent the spread of the virus, short-time work and work-from-home arrangements will continue to play a major role in many German companies. But even in firms where it is possible to work at the company once again, as a rule day-to-day work has changed considerably due to the safeguards implemented by the companies.
The provisions of the German Stock Corporation Act and the relevant election regulations (German Regulation on the Election of Employees’ Supervisory Board Members under the One-Third Participation Act and the German First to Third Electoral Regulations on regarding the German Codetermination Act) are of little help in the light of the upcoming challenges, as they practically assume that employees will be present in companies on a regular basis during the procedure for electing employee representatives to the supervisory board. The applicable election regulations not only require that election notices and announcements regarding the election are displayed in the company so that employees can take note of them; the voting itself is generally also supposed to take place by handing in a voting slip.
But even collecting supporting signatures for the submission of election proposals is currently not possible in certain circumstances or only under difficult conditions. In addition, the danger is rightly pointed out that low voter turnout could also make it easier for right-wing candidates or groups to get elected within the context of supervisory board elections.
In view of the somewhat inflexible provisions of the regulations regarding the election procedures, there is currently a significantly increased risk that the election of employee representatives to the supervisory board could be contested or rendered null and void. The consequence would not just be the need for a new (costly and time-consuming) election. If the election is found to be null and void, all resolutions in which the incorrectly elected employee representatives on the supervisory board were involved would also be invalid if the votes of those not elected could have had an effect.
2. Written voting not possible without restrictions
Although there are possibilities for many steps of the election procedure to be carried out without the employees being present in the company (for example, the election notice can also be announce by using the information and communication technology available in the company, for example by publishing it on the intranet), the voting itself is only possible outside the company under the conditions expressly set out in the election regulations. These state that voting by post generally requires employees who are prevented from voting personally to take the initiative by requesting the postal voting documents from the election committee. In addition, the election committee is supposed to make the postal voting documents available to those employees who it is certain are prevented from voting in person. The election regulations pinpoint cases where employees work from home and teleworking as well as employment as field staff.
However, these provisions were created exclusively for specific cases. Even under the previous case law of the Federal Labour Court, generally ordering the use of postal votes for all employees of a company is only intended to be permissible in the exceptional cases expressly regulated by the legislator (see Federal Labour Court (BAG) judgment of 27 January 1993 – 7 ABR 37/92). However, the exceptional cases created in the electoral regulations against this background which permit general orders of postal voting by the election boards (i) if this order relates to parts of the operations that are far away from the main operation and micro-operations that are geographically far away from the main operation, or (ii) if the majority of the employees entitled to vote are prevented from voting personally in the operation, are not likely to be of any help in most situations. In the latter case, a general postal ballot is no longer an option if more than 25 employees entitled to vote continue to carry out their work on site. Further uncertainty also exists in view of the fact that it has not yet been clarified by case law whether absence from work due to short-time working also constitutes a circumstance entitling the employee to vote in writing.
3. No “coronavirus crisis management tools”
There are no simplifications such as those created for shareholders with regard to holding virtual general meetings in the form of video conferences or live streams, or the simplified conduct of postal ballots for electing shareholder representatives to the supervisory board, which is now also possible without relevant authorisation in the articles of association, for electing employee representatives. Even the resolved legal amendment according to which a resolution of the works council (initially limited until 31 December 2020) is also to be permitted by telephone or video conference is unlikely to lead to any simplifications with regard to elections of shareholder representatives to the supervisory board. This applies all the more considering that (in contrast to the staff council elections under the German Staff Representation Act) the German Works Constitution Act also does not provide any regulations on conducting company-wide postal ballots.
4. Recommendations of the German Trade Union Confederation for supervisory board elections during the coronavirus pandemic
In the light of the challenges outlined above, the German Trade Union Confederation (DGB) has issued recommendations in which it explicitly speaks against carrying out ballots or even interrupting elections that are already underway during the coronavirus pandemic.
a) Breaking off elections at an early stage
Elections that are still at an early stage should generally be broken off by the election committee. The elections should be broken off under the scope of application of the German Co-Determination Act if the announcements regarding the nature of the election and submission of proposals for election have not taken place yet; under the German One-Third Participation Act, they should be broken off as long as the election notice has not be handed out.
b) Suspending elections that are already in progress
The German Trade Union Confederation also recommends that ongoing elections which have already passed the initial stage be suspended. It maintains that even elections that are about to be concluded in the next few days should be interrupted. The reason given for this is not only the legal difficulties involved in introducing a postal ballot, but also practical considerations such as the logistical effort involved in obtaining postal voting documents.
According to the Trade Union Confederation, the practical implementation of such a suspension could vary depending on the stage of the elections. It says that may be possible to simply “stop” the elections and continue them once the situation has got back to normal. However, it adds that it may also become necessary to repeat measures already carried out once the election procedure is resumed. In addition, before resuming the election procedure, it should always be checked whether any changes that may have occurred in the meantime require the elections to be completely restarted. This could be the case, for example, if restructuring measures performed in the meantime would have necessitated a change in the electors entitled to vote.
c) Exception for election of delegates
The German Trade Union Confederation mentions a conceivable exception to its recommendation to suspend elections with regard to the election of the “delegates”, or selected employees who are entitled to elect employee representatives to the supervisory board. It says that in this situation it is for instance possible to have a break of several months between the election of the delegates and holding of the delegates’ meeting. It points out that there is a “target provision” according to which the delegates’ meeting is to be held within one month of the elected delegates being reported to the main election committee or company election committee. However, it says that is possible to deviate from this regulation for objective reasons.
In the event of election procedures that have reached a more advanced stage, it says that a postal ballot would also come into consideration – unlike for a primary election by the employees. It adds that it could be possible to ensure that the counting of votes is made public by methods involving the internet.
Whether the requirements for written voting exist also has to be examined in each individual case when electing the delegates who then vote for employee representatives and cannot be ordered the employer.
Ensuring that the votes are counted in public by broadcasting this on the internet as suggested by the Trade Union Confederation is questionable and is likely to entail a significant risk of challenges, since the legislator has specifically avoided introducing “coronavirus crisis management tools” in connection with the selection of employee representatives to the supervisory board. It will be difficult to justify that this was merely an unconscious decision taking into account the crisis management tools created for other areas, as mentioned above.
d) Upcoming elections
For elections that are still outstanding, the Trade Union Confederation recommends postponing the elections, for instance parallel to a postponement of the general meeting.
As a result of the German Act to Mitigate the Consequences of the COVID-19 Pandemic under Civil, Insolvency and Criminal Procedure Law of 27 March 2020, the general meeting of a stock corporation (AG) or partnership limited by shares (KGaA) in 2020 does not have to be carried out in the first eight months of the business year. The Act provides a range of measures making it easier to postpone elections, which many companies have already made use of.
The Trade Union Confederation proposes that having the supervisory board members appointed by the court in accordance with section 104 German Stock Corporation Act should be considered as an interim solution until the elections are eventually carried out (possibly after the pandemic).
Appointments of supervisory board members by the court can be made at the request of the management board or management, a member of the supervisory board or a shareholder, as well as by the eligible employees themselves or their company representatives and by the trade unions represented in the company and their top-level organisations.
If the court appointment is made by agreement between the management and employee representatives, it is generally advisable to confer on the proposal for the replacement appointment by the registry court with the election committee and the works council committees.
5. No unilateral postponement or cancellation by employers
Regardless of the above recommendations of the German Trade Union Confederation, employers should not unilaterally postpone or cancel (providing they have the power to do so in the first place) pending supervisory board elections, but as far as possible should wait for the employees to take the initiative. If it appears advisable to postpone or break off the election from the employer’s perspective as well, for example to avoid the risk of the elections being contested at a later stage, one option may be to point out the recommendations of the German Trade Union Confederation on supervisory board elections during the coronavirus pandemic to the election committee and works council committees and, if the employer side is in favour of postponing or breaking off the elections, to possibly agree on appointment of the supervisory board members by the court. However, the impression that the employer is attempting to influence the election of employee representatives to the supervisory board should be avoided at all costs.
6. Alternative suggested courses of action
If delaying the supervisory board elections is out of the question, the employer and employee representatives should agree on any strategies (for example in the context of any hygiene policies which have been devised) in order to avoid the election being contested and the risk of low voting participation rates. In companies with limited space at their business premises, it may make sense in certain cases to lease premises for the elections outside the company which are large enough to allow the required distance of 1.5 to 2 metres to be maintained between the employees casting their votes. Another possible solution, provided that the situation at the company allows for this, is an open-air ballot (e.g. in “makeshift voting booths” without a roof).
Requiring the employees to wear mouth and nose protection when voting and if they are required to wait and to use their own (personal) pen and to keep a certain number of pens and single-use masks available just in case should be considered. To make sure that all the employees do not cast their votes at the same time, it can also make sense to separate them into groups who are allotted a certain timeframe during which they can cast their votes. Finally, to avoid the ballot being open to challenges, it should be made sure in this case that the employer makes sure that employees actually have the opportunity to take part in voting during the allotted time frame.
Any questions? Please contact: Mareike Götte or Sophia-Clara Schulte
Practice group: Employment & Pensions